From Uber to Lyft to Airbnb, it’s the year of tech Initial Public Offering. Yesterday reports from various news sources came of Slack Technologies which started trading on the New York Stock Exchange in a direct public offering. The workplace chat app synonymous to generic term “I’ll Slack you”, landed on the Wall Street with $20 billion valuation on Thursday, according to Financial Times. Slack took a different route than the other tech giants in Silicon Valley, and saw its shares soar as it went public without the IPO.
This year in February, Slack had confidentially filed with the Securities and Exchange Commission to go public in the U.S. for listing its shares.
The Slack management had agreed to a reference price of $26 per share but the shares opened at $38.50, and closed at $38.62. Slack shares started trading around noon Thursday on the NYSE under the ticker symbol “$WORK.” It was a historic day for Slack as the stocks climbed as high as $42 in an intraday trading Thursday evening.
— TechCrunch (@TechCrunch) June 19, 2019
Slack is planning to go public on Thursday and largely steering clear of Wall Street and its high fees. The IPO reference price is set at $26 a share https://t.co/bxqyPakiWz
— The Wall Street Journal (@WSJ) June 19, 2019
Slack was reportedly valued at $7 billion in 2018, according to CNBC, and has more than 10 million daily active users. The platform expects its annual revenue for this year to be $500 million and with the offering it has achieved this goal.
Stewart Butterfield, Slack co-founder and chief executive officer is a billionaire, having an 8.6% stake worth $1.6 billion at the opening price. Accel, its largest shareholder, has a stake worth a whopping $4.6 billion. Other key shareholders include Social Capital, which owns a stake worth $2 billion, Andreessen Horowitz ($2.6 billion), SoftBank ($1.4 billion) and Slack co-founder Cal Henderson ($646 million).
According to Fortune, Butterfield comes a long way from the log cabin where he lived without electricity and running water for the first few years of his life. He was introduced to computers in the second grade but lost interest in the technology as he got older and went on to study philosophy in college.
“By the time I finished my master’s degree I really had no idea of what I was going to do except for being an academic because, you know, the big five philosophy firms aren’t always hiring,” Butterfield told Bloomberg last year.
Why Slack chose to go direct and how is it beneficial
Butterfield told CNBC that the company chose not to have a traditional IPO for a pragmatic reason: It didn’t need the cash. “We’re not ideological crusaders on this stuff,” he said. The direct listing process is a more efficient way to price a stock, he said, “but I don’t think anything comes close to not having to dilute existing shareholders by 10%.”
Butterfield said he also wanted to avoid the lockup period. “Especially in a period when you’re locked up, when the supply is so constrained, the psychological impact of that can be a big negative,” he said. “Giving employees the option early is more important.”
Slack goes public today — but it's not an IPO day, it's a direct listing day. Slack CEO Stewart Butterfield explains the difference and why the tech company chose to directly list. $WORK https://t.co/CiaHRcaPaN pic.twitter.com/osfKvVveQy
— CNBC (@CNBC) June 20, 2019
As per Fortune, unlike an ordinary IPO, a direct listing means the company doesn’t issue any new shares and doesn’t raise additional capital. It’s primarily a way for company insiders to sell some of their holdings to investors, while bypassing the formidable fees and requirements of using an underwriter.
Direct listing is different in a way than a traditional initial public offering that, it does not include securing commitments from investment banks, attracting potential investors through a “roadshow” and pricing the shares before they start trading. Slack is second in a row to choose for direct listing, following in the footsteps of Spotify last summer. Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. advised Slack on the listing.
A direct listing “is viewed as a little bit riskier or more uncertain for a number of reasons, principally because you haven’t had this roadshow process, so it’s a bit harder to tell where the shares are going to open and at what price,” said Adam Augusiak-Boro, a senior research associate at EquityZen.
What investors should pay for the shares of Slack
CNBC’s Jim Crammer says, “Slack will generate a ton of excitement when it lists on the New York Stock Exchange”, he also gave a breakdown of what investors should pay for the shares of Slack.
“I’m willing to let you pay $40. … That’s well above. Now if you can get it below that, that’s even better. If not, you keep your bat on your shoulder,” said Jim Crammer. “Slack is a great story … but we still got to be disciplined if you want to start a position in this one.”
Cramer calls Slack “fresh-faced” enterprise software play with a strong growth rate. Slack’s revenue grew 82% in 2018, but slowed to 67% in its most recent quarter. Paid customers grew 42% in the same year, and it grew another 42% in the most recent quarter, Cramer said.
The company also grew its client base of businesses that bring in more than $100,000 of annual revenue by 93%, he said.
“In short, Slack’s overall growth is fantastic,” he said. “The company’s on the path to profitability. The balance sheet is fine.”
Community response has been positive on this news, one of the users on Hacker News commented, “Well deserved. Their product-vision was clear, their execution focused on what mattered… and they didn’t need to bend or break laws to succeed.
It’s easily my favorite unicorn of the past decade.”
People also appreciated the fact that Slack has been a diverse organization and everyone did benefit from the IPO.
Slack’s IPO is first time on here that I’m seeing more than 1 or 2 black folks secure the bag because their employer is going public.
— Don Richard (@DonaldRichard) June 20, 2019